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Yahoo
4 days ago
- Business
- Yahoo
Don't Need Your Required Minimum Distribution (RMD) Right Now? What Can You Do With the Cash Influx?
Key Points The IRS eventually comes looking for the tax revenue it didn't get to collect earlier on the money invested within IRAs and other tax-deferred accounts. Just because you withdraw money from a tax-sheltered retirement account doesn't mean it can't continue providing value, or continue growing. There's a financial maneuver that can help negate your need to make future RMDs. The $23,760 Social Security bonus most retirees completely overlook › Are you going to be 73 years old (or older) at any point in 2025? If so, whether or not you need it -- or even want it -- you will be legally required to start taking money out of most types of tax-deferred retirement accounts you may own. These withdrawals are called required minimum distributions, in fact, or RMDs -- and failing to make those taxable withdrawals each year before the annual deadline can result in decent-sized penalties. Don't stress out if you just don't need this cash at this time, though. While you can't refuse to withdraw it, you can still do constructive things with it outside of your IRA. Here's a review of your four best options. But first things first. What's an RMD? If you've already been through your first required minimum distribution, then 2025's RMD isn't your first rodeo. If you're unfamiliar with them, though, here's the deal. All the money that's been growing tax-free inside your (non-Roth) IRA, 401(k), or similar account? The IRS eventually wants its cut. The federal government's revenue-collection arm figures that 73 years of age is about as late in life as it wants to let you keep this money completely untaxed. And once you start, you'll take these required minimum distributions every year for the rest of your life. But what's the minimum? It varies with your age. When you're 73, you'll only need to withdraw about 3.77% of your retirement account's value as of the end of the prior year. The proportion gets progressively larger as you age, though, reaching 50% of the prior year's closing value at the rarely seen age of 120. Your brokerage firm or your account's custodian will supply you with the information needed to determine your RMD, and in many cases can figure it out for you. Otherwise, refer to the IRS for instructions. If you own more than one retirement account, that's OK. You can mix and match your withdrawals from the same kinds of retirement accounts to come up with a sum-total RMD figure, and then make the withdrawal from just one of these accounts, or portions from each. The IRS only cares about the total amount it's owed -- not where the money comes from. However, you can't mix and match among different kinds of retirement accounts, like a 403(b) and a traditional IRA. Both of them do have RMDs, but you'll have to handle each category separately. You can only combine like-categorized retirement accounts for RMD calculation and withdrawal purposes. There's one exception to this: 401(k) accounts. If you happen to have more than one 401(k), you need to take your calculated RMD for each one from that one. As for timing, your very first required minimum distribution doesn't need to be completed until April 1 of the year after you turn 73. Past that point, these withdrawals are supposed to be completed by the end of the calendar tax year. That means if you wait to make your first one, you may end up taking two years' worth of RMDs in the year you turn 74. Options Suppose you don't actually need all of that money in that year, though. No problem. While you'll still need to make these withdrawals, there are several options for what you may want to do with the cash influx, some of them specific to IRAs. 1. Give it away (tax efficiently) You can always give money to charitable causes. And, while there are limits, donations to legitimate charities are at least somewhat tax-deductible. If you're over 70 and a half and are willing to transfer cash or assets directly from your IRA to a charity, though, tax-deductibility limits are much higher. Specifically, by categorizing your RMD as a qualified charitable distribution (or QCD), you can take as much as $108,000 worth of an IRA distribution that would have been considered your taxable income (or up to $216,00 for a married couple) and directly transfer it to a charitable cause -- and that maneuver will still satisfy your minimum distribution requirement. You can't do this with 401(k)s or similar accounts. Contact the charity in question for instructions on how they can receive this gift, and then confirm it for your record-keeping and documentation purposes. 2. Tuck it away for a rainy day Just because you don't need this money right now doesn't necessarily mean you want to get rid of it altogether, of course. The day may well come when you do need it. If that's the case, leaving a sizable wad of cash in a checking or savings account is an option, but arguably not your best one. These accounts pay little to no interest. If you're willing to make a minimal amount of effort to shop around, you can find a high-yield money market fund you like instead. Such accounts are currently paying in the ballpark of 4%, and almost all brokerage firms and most online banks offer them. Now, moving money into and out of such funds involves buying and selling just like an ordinary mutual fund. So, to convert that money back to something liquid and cash-like will take one full business day. It's certainly worth the trouble, though, for a good interest rate on the kind of money you're likely to be reallocating with an RMD. 3. Invest it -- or reinvest it -- with its new taxable status in mind Most people slated to collect a required minimum distribution who don't actually need the money at that time are likely just going to reinvest it. However, if you're only going to repurchase the same investments you sold to facilitate the RMD, you need not bother. You can simply request a transfer of assets from an IRA and into an ordinary brokerage account. Just instruct your broker/custodian to do what's called an in-kind transfer. It may take an extra day or two to complete, but you'll still get a precise distribution value figure for the day the transfer was officially done. That being said, while you're moving things around anyway, you might want to use the opportunity to make some smart changes to your portfolio. Just consider the new taxable status for any freed-up money or assets. Nothing that ever happened within your IRA was a taxable event. Now, everything this money could become presents a potential tax liability. If you want to keep your tax bill to a minimum, you probably won't want to invest your entire RMD in dividend stocks. While they're riskier, buy-and-hold growth stocks are also rather tax-efficient. 4. Start saving for a Roth conversion Finally, if you know taking taxable withdrawals out of your retirement account every year is going to be more of a drag than you care to deal with, you've always got the option of converting an ordinary IRA into a Roth IRA -- Roths aren't subject to RMDs. The downside to this move is that when you convert money from an ordinary IRA into a Roth, all the taxes on this withdrawal come due at once. This can get expensive, especially if doing so bumps you into a higher tax bracket for the year. That's why many people who opt for Roth conversions perform them over the course of multiple years, completing the conversion in tranches, each of which is a relatively small income-taxable event. Assuming you'd rather not leave any money out of the newly converted (but still tax-deferring) Roth when you don't have to, you can cover this tax bill with other funds ... including your RMD money. Just bear in mind that a Roth conversion doesn't satisfy your RMD for that year. And, paying taxes on one doesn't negate the tax bill for the other. Every year's required minimum distribution is already determined at the end of the prior year, and is owed whether you do a conversion that year or not. If you like this idea, you'll simply want to convert as much money as possible as quickly as possible to keep your RMDs -- and the number of years you must take them -- to their lowest-possible minimum. The $23,760 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Don't Need Your Required Minimum Distribution (RMD) Right Now? What Can You Do With the Cash Influx? was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
4 days ago
- Business
- Yahoo
Should You Actually Invest Your Own Money in the Trump Baby Accounts?
One of the key provisions of President Donald Trump's 'Big Beautiful Bill' establishes so-called 'Trump Accounts,' designed to encourage savings for newborn children. In addition to receiving an initial deposit from the federal government, the accounts allow for additional contributions by parents or employers. Read Next: Check Out: The question is this: Should you actually invest your own money in these accounts? Or is there a better option among the other types of regular and tax-advantaged accounts that are already available? Here's a brief overview of the provisions of the Trump baby accounts and some recommendations as to whether or not you should invest. What Are the Parameters of the Trump Baby Accounts? The Trump Accounts are custodial, tax-deferred accounts that are somewhat like a hybrid of a traditional custodial account and an IRA account. They are registered in the name of the child, like a custodial account, and the money inside grows tax-deferred, like in an IRA. Money in a Trump Account cannot be withdrawn until age 18. After that, withdrawals can be made, but they are fully taxable and may be subject to a 10% penalty if withdrawn before age 59 1/2, as with IRAs and other tax-deferred retirement accounts. As with IRAs, there are some exceptions to the 10% penalty rule, including withdrawals for higher education and the purchase of a first home. One of the unique benefits of a Trump Account is that the government will fund the first $1,000 in each and every account. After that, parents or employers can contribute up to an additional $5,000 per year, with a limit of $2,500 coming from employers. Unlike investments in other tax-deferred accounts, like 529 plans, IRAs and 401(k) plans, investments within a Trump Account are strictly limited to a U.S. stock market index fund. Find Out: Comparison of Trump Accounts With 529 Plans Here's a side-by-side comparison of the basic provisions of a Trump Account with a 529 plan, which is a commonly used, tax-deferred college funding account. Trump Account 529 Plan Government Contribution $1,000 $0 Contribution Limit $5,000 annually Variable; typically in the $300,000 range over the lifetime of the account Investment Options A U.S. stock index fund Typically a range of mutual funds or ETFs Taxation of Withdrawals Fully taxable; 10% penalty before age 59 1/2, with some exceptions (first-time homebuyer, education, etc.) Tax-free if used for education; earnings are fully taxable otherwise, with a 10% early withdrawal penalty if not used for qualified purpose Account Ownership Child's name; could affect student aid Account owner's name (typically a parent); reduced FAFSA impact Tax Treatment of Contributions Funded with after-tax money Funded with after-tax money Withdrawal Time Frame Not allowed until after age 18; taxable upon withdrawal Anytime, but must be used for education to be tax-free Risk Level 100% equity portfolio; restricted withdrawals until 18 More diversified investment options Asset Management One investment option State investment plans or professional advisor; some DIY options So What's the Verdict? As Michael Reynolds, a certified financial planner at Elevation Financial in the Indianapolis area, told NPR, 'I'm going to take the thousand dollars, definitely. Nothing wrong with that.' But beyond that, most advisors suggest that 529 plans might be the better option. Here are some of the main advantages of a 529 plan over a Trump Account: Higher maximum contributions over life of account More diversified investment options Accounts count as parents' assets, not child's assets Money can be withdrawn at any time, instead of being locked in account until the child turns age 18 (taxes and penalties may apply). The main advantage of the Trump Account is the initial $1,000 in seed funding from the federal government. That, advisors agree, is something parents should take advantage of. But adding more money to these accounts — while better than not saving at all — may not be the optimal use of your child's investment funds. Editor's note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on More From GOBankingRates 10 Unreliable SUVs To Stay Away From Buying This article originally appeared on Should You Actually Invest Your Own Money in the Trump Baby Accounts? Sign in to access your portfolio
Yahoo
4 days ago
- Business
- Yahoo
Should You Actually Invest Your Own Money in the Trump Baby Accounts?
One of the key provisions of President Donald Trump's 'Big Beautiful Bill' establishes so-called 'Trump Accounts,' designed to encourage savings for newborn children. In addition to receiving an initial deposit from the federal government, the accounts allow for additional contributions by parents or employers. Read Next: Check Out: The question is this: Should you actually invest your own money in these accounts? Or is there a better option among the other types of regular and tax-advantaged accounts that are already available? Here's a brief overview of the provisions of the Trump baby accounts and some recommendations as to whether or not you should invest. What Are the Parameters of the Trump Baby Accounts? The Trump Accounts are custodial, tax-deferred accounts that are somewhat like a hybrid of a traditional custodial account and an IRA account. They are registered in the name of the child, like a custodial account, and the money inside grows tax-deferred, like in an IRA. Money in a Trump Account cannot be withdrawn until age 18. After that, withdrawals can be made, but they are fully taxable and may be subject to a 10% penalty if withdrawn before age 59 1/2, as with IRAs and other tax-deferred retirement accounts. As with IRAs, there are some exceptions to the 10% penalty rule, including withdrawals for higher education and the purchase of a first home. One of the unique benefits of a Trump Account is that the government will fund the first $1,000 in each and every account. After that, parents or employers can contribute up to an additional $5,000 per year, with a limit of $2,500 coming from employers. Unlike investments in other tax-deferred accounts, like 529 plans, IRAs and 401(k) plans, investments within a Trump Account are strictly limited to a U.S. stock market index fund. Find Out: Comparison of Trump Accounts With 529 Plans Here's a side-by-side comparison of the basic provisions of a Trump Account with a 529 plan, which is a commonly used, tax-deferred college funding account. Trump Account 529 Plan Government Contribution $1,000 $0 Contribution Limit $5,000 annually Variable; typically in the $300,000 range over the lifetime of the account Investment Options A U.S. stock index fund Typically a range of mutual funds or ETFs Taxation of Withdrawals Fully taxable; 10% penalty before age 59 1/2, with some exceptions (first-time homebuyer, education, etc.) Tax-free if used for education; earnings are fully taxable otherwise, with a 10% early withdrawal penalty if not used for qualified purpose Account Ownership Child's name; could affect student aid Account owner's name (typically a parent); reduced FAFSA impact Tax Treatment of Contributions Funded with after-tax money Funded with after-tax money Withdrawal Time Frame Not allowed until after age 18; taxable upon withdrawal Anytime, but must be used for education to be tax-free Risk Level 100% equity portfolio; restricted withdrawals until 18 More diversified investment options Asset Management One investment option State investment plans or professional advisor; some DIY options So What's the Verdict? As Michael Reynolds, a certified financial planner at Elevation Financial in the Indianapolis area, told NPR, 'I'm going to take the thousand dollars, definitely. Nothing wrong with that.' But beyond that, most advisors suggest that 529 plans might be the better option. Here are some of the main advantages of a 529 plan over a Trump Account: Higher maximum contributions over life of account More diversified investment options Accounts count as parents' assets, not child's assets Money can be withdrawn at any time, instead of being locked in account until the child turns age 18 (taxes and penalties may apply). The main advantage of the Trump Account is the initial $1,000 in seed funding from the federal government. That, advisors agree, is something parents should take advantage of. But adding more money to these accounts — while better than not saving at all — may not be the optimal use of your child's investment funds. Editor's note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on More From GOBankingRates Mark Cuban Says Trump's Executive Order To Lower Medication Costs Has a 'Real Shot' -- Here's Why This article originally appeared on Should You Actually Invest Your Own Money in the Trump Baby Accounts?


Skift
11-07-2025
- Business
- Skift
Brad Gerstner on 'Trump Accounts' and the Travel Leaders He Still Calls First
Brad Gerstner's Invest America, which turned into Trump Accounts, could be a game-changer for tens of millions of American kids. Altimeter Capital CEO and travel industry veteran Brad Gerstner opened custodial investment accounts for his two sons at birth — but it was his son Lincoln's question at the kitchen table that led to a national policy. "Well this doesn't seem fair," Lincoln said. "Why do we get these and what about the other kids?" Gerstner said that was the spark for the Invest America initiative and the creation of "Trump Accounts." Under the new law, every American under age 18 will be eligible to open a tax-deferred investment account starting around July 4, 2026, and those born after December 31, 2024 will get $1,000 in government seed funding. Several corporations, including Uber, Zillow, T-Mobile, Nvidia, Salesforce, and iHeartMedia, have committed to giving $2,500 to employees' kids as a tax-free benefit. "Of course, less than 5% of kids in America currently have [investment] accounts," Gerstner told Skift. "And not surprisingly, the kids who do have the accounts are kids whose parents are pretty affluent. And so I grew up poor in Indiana, in a poor town. I have a really strong belief that there's a massive unlocked potential in the country." The Travel Industry Created Ties That Bind Early in his career, Gerstner was co-CEO of National Leisure Group, which was a major cruise seller; he led a General Catalyst investment into Orbitz; was a prominent travel angel investor, and founded Room77. These days, with his Altimeter Capital investing billions of dollars in tech companies like Nvidia, Meta, Uber and Microsoft, Gerstner is a frequent CNBC guest and co-hosts the BG2Pod with Bill Gurley. Gerstner has been interviewed on stage at past Skift Global Forums. Although the travel industry isn't currently his focus, Gerstner still has deep ties, particularly with Zillow co-founder and Expedia founder Rich Barton, and Uber CEO Dara Khosrowshahi, who is also a former Expedia CEO. "I've worked on a lot of things over the years, and my first two calls are generally to Rich Barton and Dara," Gerstner said. "You forge friendships in the travel business 25 years ago, and we support each other. No questions asked. And because we trust one another, and if we're passionate about it, then we know, we've done the work. And those guys' early support [for Invest America] was monumental." Why Silicon Valley Gets Along With Trump Gerstner said that Silicon Valley's relatively warm relationship with President Trump has little to do with politics. "I think part of the reason that Silicon Valley has had some success with this president versus [former President] Biden isn't really about the political agenda as much as it is he's a business guy, and he kind of moves at an entrepreneurial speed," Gerstner said. "And there's not a bunch of layers." A case in point: A couple of months ago, Gerstner said he told Dell Technologies CEO Michael Dell – a member of the Invest America CEO Council – that "we need to get the president on board." Dell texted Trump, who texted right back and invited them to the White House to pitch it. The White House also held an Invest America Roundtable with Gerstner and prominent supporters in early June. The Trump Accounts Name The original idea was to call them Invest America Accounts, but the name "Trump Accounts" helped the legislation ultimately become law. And the idea received bipartisan support, Gerstner said, who added that several CEO supporters of Invest America are Democrats. He had previously tried to get then-President Biden to go for the idea but it didn't get traction. Gerstner said Congress would need to "re-up" the $1,000 per child government funding in 2028, which he doesn't think will be much of an issue. "We'll see what people call them after he's [Trump's] out of office," he said. 65 Million Kids The original plan was to include children up to age 10, but Gerstner said it expanded to include all Americans under age 18 – around 65 million will be eligible, he said. Newborns born as of January 1, 2025 get automatically enrolled and funded, but older kids have to sign up. Invest America, Gerstner said, will be working to ensure that as many kids sign up as possible. For those children who have accounts, but were born before January 1, 2025, anyone — parents, family, friends, and corporations — can contribute a maximum of $5,000 annually per child. Education Secretary Linda McMahon, he said, is an enthusiastic supporter and Gerstner would like to see sign-up materials included with other documents on the first day of school. "I absolutely believe this most important thing I've done in my career," he said. "But it's like when you start business, and moment that we just got funded. All right, so now we've got to go execute our asses off and make sure it lives up to its promise." Gerstner said he's committed to making the accounts as equitable and powerful as they can be. The investment accounts are "making every kid a capitalist, making every kid a true owner in the upside of America. We need to evolve the social contract to include the 70% who currently feel left out and left behind. And I think this is a powerful way to do it."


Forbes
25-05-2025
- Business
- Forbes
Are $1,000 Trump Accounts A Good Idea?
Republicans in the House of Representatives passed the GOP 'One, Big Beautiful' budget bill which included a provision for Trump Accounts. Previously called 'MAGA Accounts Contribution Pilot Program,' in which MAGA stood for Money Account for Growth and Advancement, this provision is similar to the $5,000 Baby Bond suggested by Senator Hillary Clinton when she was running for President. The Trump Account is a tax-deferred investment account that the Treasury Department would set up automatically for each eligible child born in 2025 through 2028. They call it a savings account but it will act more like a brokerage account. The child must be a U.S. citizen at birth, have a Social Security Number, and be born to parents who both have Social Security Numbers. Parents can also contribute up to $5,000 per year into this account for their children. The assets in a Trump Account would grow tax free but would be taxed at long term capital gains rates when withdrawn if they are used for qualifying expenses. Qualifying expenses include education, first time home, and even capital for starting a business. Half of the funds can be withdrawn once the child turns 18. If the funds are not used for a qualifying expense, it would be taxed as income. After 30, all the funds can be withdrawn for any purpose. It's natural to compare this with another tax advantaged account often used for education. 529 Plans are, in many ways, far superior though it does lack one beneficial feature of the Trump Account - the Treasury sending a child $1,000 just for being born. If you use 529 funds for qualified educational expenses, you pay no tax. While long term capital gains rates are quite favorable, they're not nearly as favorable as zero percent. 529 Plans also have the nice new feature in which you can transfer funds into a Roth IRA subject to certain limits and conditions. This means that if you contribute too much to a 529 plan, there's a buffer amount you can always transfer into a Roth IRA. The lifetime limit of transfers is $35,000 - which is quite significant. Trump Accounts do include buying a first home and starting a business as qualified expenses, but you are still subject to long term capital gains tax. The House of Representatives has passed a version of the bill but the Senate has yet to take it up. We will see whether the Senate version keeps the Trump Accounts as is or if they will make adjustments. If it remains unchanged, you might as well take the free $1,000 that comes with automatic enrollment of a Trump Account but there's little reason to contribute more towards the account as the child ages. For education expenses, you're better off contributing into a 529 plan.